Place holder node for 1996
National Office Instruction
amending General Orders (1993 edition)
Instruction No. 53
Date of Effect: On receipt
6443
Purpose
The purpose of this instruction is to clarify the policy regarding medical discharges from the Forces and resultant determinations of eligibility under s4AAA of the Defence Service Homes Act 1918.
Background
A recent case decided by the Federal Court in favour of the applicant has highlighted the need to refine the policy regarding medical discharges and determinations of eligibility.
The case involved an applicant who had enlisted for six years and became an assault trooper. Bad fortune befell him in his fifth year of service: while parachuting, an activity approved by his Commanding Officer, he broke his ankle. It was a serious injury, putting him in hospital for some months and subsequently causing his superiors to rate his fitness as 'below medical standard'. That meant he could no longer be an assault trooper.
His superiors counselled him in hospital. He was told that he had a choice: he could transfer to another corps and be a storeman, or he could be discharged, at his own request, on medical grounds. He chose the latter. He did not want a corps transfer, partly because he wanted to be an assault trooper, not a storeman, and partly, it seems, because he was told that there would be little future for him in the Army, there being, apparently, a process in train to weed out members who were not 100 per cent fit. He requested, and was eventually granted, a discharge.
Some years later he applied for a notice of eligibility under the Defence Service Homes Act 1918. The application was declined at both the primary and review decision stages because of advice from the Department of Defence that his discharge was not by reason of 'invalidity or physical or mental incapacity to perform duties'.
A subsequent appeal to the AAT affirmed the earlier decisions, but in reaching its decision, the AAT raised a jurisdictional issue of major importance. That issue was whether the decision-maker (the Secretary of DVA) has the power, when determining eligibility under the Act, to 'go behind' the Army's stated reason for discharge (ie the reason contained in the member's discharge record). Until the Court hearing there had been conflicting authority on this point, but the AAT member clearly thought there was such power. In other words, the AAT held that it could take other matters into account in deciding an issue under Subsection 4AAA(1)(b) and not rely solely on the reasons for discharge as recorded by Defence.
Subsequent appeals by the applicant in regard to his eligibility and a cross appeal by the Department in regard to the jurisdictional issue were heard by the Federal Court recently. The Court decided in favour of the applicant on the eligibility matter and against the Department on the jurisdictional issue.
In deciding upon the jurisdictional issue, the Federal Court expressed the view that there are good reasons for a construction of s4AAA of the DSH Act that not only allows the decision-maker to determine the issue, but also requires him or her to do so. To rely on the military's stated reason could lead to injustice in some cases. The reason may have been erroneously or misleadingly stated. The potential for injustice stems from the inflexibility of an approach that treats words used in one context as having clearly-defined, 'objective' meanings apt for application in another.
In a sense, this confirms the long held view that the Secretary and appointed delegates determine eligibility under the DSH Act and not officers in the various Defence records offices.
In the case before it, the Federal Court considered the discharge term 'at own request'. It commented that on the face of it, this implies that the member asked to leave instead of being asked to leave. The term is simply one of the categories that is apparently meaningful to the Army for its purposes, but it does not necessarily bear upon the criteria for determining whether a member should get a subsidised home loan or not. It obscures a very real possibility: an incapacitated or invalid soldier might seek, at his/her own request, to be discharged.
The Federal Court expressed the view that the DSH Act is beneficial legislation and should be construed beneficially in favour of the applicant. The eligibility provisions of the Act in relation to peacetime service have the purpose of providing a benefit to people who have spent in excess of 6 years in the military service of their country or to people who have committed themselves to 6 years service and would have so served but for some legitimate reason such as, say, a medical one. To construe the Act in a way that would necessarily preclude further enquiry into the eligibility for a home loan of a person such as the applicant, whose formal record of service does not happen to include the words 'discharged on the grounds of invalidity or incapacity to perform duties' but whose claimed actual reason for discharge was his physical inability to perform military duties, would tend against the Act's beneficial purpose.
The substantive issue, the subject of the appeal before the Federal Court was whether, within the true meaning of s4AAA of the DSH Act, the applicant was discharged on the ground of invalidity or physical or mental incapacity to perform duties.
The Court found that the AAT took a narrow view, taking the section to refer to a discharge on account of inability to perform any military service. The Court expressed the view that there is nothing to suggest that the word 'duties' is to be understood to mean 'all military duties' or 'any military duty'. In the result there is some elasticity in the section: whether there has been a discharge on the ground of 'incapacity to perform duties' can only be judged in the circumstance of each case: it becomes a question of fact. It is entirely consistent with the beneficial nature of the legislation.
The Federal Court expressed the view that the question for the decision maker, when determining eligibility would be this:
'Is the applicant to be regarded, as a matter of ordinary language, as having been discharged on the ground of his or her incapacity to perform duties?'
It is no more than a restatement of that test to put it in the following way, which may perhaps, be more helpful to a decision maker:
'Is it fair to say that physical or mental incapacity for some or all military duties was the factor actuating the military discharge of the person in question?'
The test, as so framed, does not involve distractions of enquiring whether:
(a) the person's discharge was voluntary or involuntary;
(b) the applicant for a DSH loan had a remnant capacity to perform some military duties or none; or
(c) there were or were not other factors also operating to bring about the discharge.
It is enough if incapacity to perform some military duties was a sufficiently substantial and operative factor that it is reasonable to say that that was the ground of the discharge.
On reflection, the basic questions in this case were whether the applicant was committed to serving for the basic service period, and if so, whether that service ended by reason of medical incapacity to perform duties. The answer was 'yes' on both counts, notwithstanding that service records indicated that he was discharged 'at own request'. There was nothing known about the applicant that would suggest that he had any intention of not serving for the basic service period service had he not sustained the injury which made him unfit for further service as an 'assault trooper' during the fifth year of his service. Officially the Department of Defence gave him a medical classification as being 'below medical standard'. It is also worth noting that the weekend activity (parachuting) which caused the injury was directly related to his Army occupation. Here was a young soldier so dedicated to what he was doing in the Army that he spent his leisure time perfecting the skills so necessary to doing his job well. This reinforces the evidence of the commitment he had at the time.
Policy
It is important for individuals like the successful appellant in this case, that we learn from cases like this. It is also important that this is not seen as a criticism of those who dealt with the case at primary and review decision stage. Their decisions after all, were affirmed on appeal to the AAT. This is the very reason that appeal mechanisms exist. Often legal opinions vary in interpretations of the law and often full bench hearings are decided in the majority and not unanimously.
The Federal Court's decision in this case confirms the view that there is nothing to prevent the Secretary and appointed delegates from taking other matters into consideration, other than the enlistment and discharge details as recorded by Defence, when determining eligibility. There is nothing new in this approach. An example in recent years is detailed in Central Office Instruction No 35 of 28 October 1994 where a benevolent approach to establishing eligibility of WWII female veterans was promulgated, notwithstanding the effect that documents they may have signed when enlisting had on their eligibility.
Obviously we will continue to rely heavily on information provided on official Defence records, whether it is provided by the applicant under 'best evidence' or direct by the Department of Defence through a 'Request for Service Details'. However, in any case where the applicant disputes the accuracy of information provided, further information should be sought from any relevant source to enable an informed decision to be made. Where it is established that a medical condition was a factor in an applicant's premature discharge, notwithstanding that officially, the discharge was not on the ground of invalidity or physical or mental incapacity to perform duties' a benevolent approach to determining eligibility is to be followed after considering the following basic question.
'Is it fair to say that physical or mental incapacity for some or all military duties was the factor actuating the military discharge of the person in question?'
General Orders
Eligibility General Order 9.2.4.2 has been amended to incorporate this change of policy. This opportunity is also taken to include a reference to 'open ended enlistments' in the same GO following another case recently received. Although 'open ended enlistments' were introduced for non commissioned officers from 1 July 1988, certain applicants had some first service before 15 May 1985 and are seeking assistance under the DSH Act. Under 'open ended enlistments' soldiers enlist until their normal retirement age (55 years). Discharge will not be granted without 6 months' notice and until the appropriate Return of Service Obligation has been fulfilled (for most soldiers - 4 years). As such enlistments are open ended, all soldiers with this form of enlistment satisfy the minimum requirement of enlistment for 'not less than 6 years' as specified in s4AAA(1)(b).
Also included is a complete schedule to the War Gratuity Act 1945 which was affected by a pagination problem when NOI 47 was issued earlier in the year. Amended pages 3 and 4 of the Eligibility GO's Index are also attached. This opportunity is also taken to update the NOI Index.
Attached are amended pages for the Eligibility General Orders. Please replace the existing pages 3-4 and 39-48 with the amended version. This Instruction has no effect on any previously issued NOI.
KERRY BLACKBURN
Branch Head
Housing & Community Services
29 November 1996
National Office Instruction
amending General Orders (1993 edition)
Instruction No. 52
Date of Effect: 1 November 1996
UNIFORM CONSUMER CREDIT CODE - 1 NOVEMBER 1996
AMENDMENTS TO THE DEFENCE SERVICE HOMES ACT 1918 BY THE VETERANS' AFFAIRS LEGISLATION AMENDMENT ACT (NO 1) 1996
Purpose
The purpose of this instruction is to explain the effects of the Uniform Consumer Credit Code and of the complementary amendments to the Defence Service Homes Act 1918 on the Defence Service Homes Scheme.
Background
In July 1993, national agreement was reached to introduce uniform legislation to regulate the provision of consumer credit. The resultant Uniform Consumer Credit Code (the Code) applies to all credit provided in the course of business of a credit provider to a borrower who is an individual, or strata corporation, and if the credit is provided wholly or predominantly for personal, domestic or household purposes.
The Code provides greater protection for borrowers and makes lending institutions more accountable in their dealings with their customers. It came into effect in all States and Territories on 1 November 1996. However, Tasmania has a two staged implementation - 1 November 1996 for national lending institutions which have obtained the necessary Ministerial approval and 1 March 1997 for the remaining lending institutions.
This instruction is intended to explain the impact of the Code on our dealings with members of the veteran community on DSH matters. It also explains the changes to the Defence Service Homes Act 1918 which are directly related to the commencement of the Code.
The Code appears as an Appendix to the Consumer Credit Act of each State and Territory. However, as the Code is State and Territory legislation, it was recognised that there could be a conflict in legal rights for DSH borrowers under some provisions, because DSH loans are provided under Commonwealth legislation. This potential conflict would not necessarily have been resolved by relying on Section 109 of the Constitution which provides that Commonwealth law shall prevail over State law where they cover the same subject and are in conflict.
To ensure that DSH borrowers have consumer rights similar to those that other borrowers have under the Code, complementary amendments to the Defence Service Homes Act 1918 were introduced into Parliament on 22 May 1996 to remove any potential conflict. Those amendments were contained in the Veterans' Affairs Legislation Amendment Act (No 1) 1996 which received Royal Assent on 8 November 1996. The DSH Act amendments provide for concurrent operation of the Code apart from matters contained in the amending Act.
Amendments to the Agreement between the Commonwealth and the Westpac Banking Corporation are also necessary and are presently in draft. These changes will adopt certain elements of the Code which provide more favourable conditions for clients than are currently provided, and protect the Bank from losses incurred as a result of actions of Commonwealth officers. Details of the amendments to the Agreement will be explained once that document has been signed by the respective parties.
Staff Awareness Sessions
Staff awareness sessions on the Uniform Consumer Credit Code have been conducted in each State Office over the past few weeks in order to ensure that staff are across the issues and that the risk of our breaching the Code are minimised. This instruction therefore will not repeat the detail of the extensive training notes provided to staff as part of the staff awareness exercise. Rather it is meant to highlight the Code's impact and explain the changes to the Defence Service Homes Act 1918 which complement the introduction of the Code.
The Code's Impact
Generally we need to be aware of the Code's provisions as contained in the training notes referred to above. Specifically, we need to be aware of those provisions which directly impact on the administration of the DSH Scheme. In summary they are:
Related Issue
There is one further change to the DSH Scheme which does not arise directly from the introduction of the Code. Under current arrangements, the monthly repayments on old DSH loans funded before the sale to Westpac are due on the first day of each month. Repayments on new loans funded by Westpac since the sale are due on the fifth day of each month. These repayment days are defined in the Agreement between the Commonwealth and Westpac as 'rest days'. Having two rest days when one would suffice is administratively cumbersome. Amendments to the Act to coincide with the introduction of the Code provide a timely opportunity to remove one of the rest days. No client would be disadvantaged by moving the rest days which currently fall on the 1st of the month to the 5th of the month.
It has therefore been decided to abolish the rest days which occur on the 1st day of the month on Defence Service Homes (DSH) mortgages where applicable and replace them with rest days which occur on the 5th day of the month for administrative simplicity.
Changes to the DSH Act
Details of the changes to the DSH Act are as follows:
(i) Amendment to Section 4
As another Supplementary Agreement is to be implemented, it is necessary to change the current definition of the term 'agreement' in section 4. It is also necessary to introduce a number of new definitions in section 4 clarifying the interpretations to be applied and the meanings of terms used in the amendment.
In order to clarify any doubt about the status of the UCCC in relation to the DSH Act, a new Section 4D provides for the concurrent operation of the Codes of the States and Territories apart from matters covered in the Amending Act itself.
(ii) New Provisions to Give Courts Re-opening Powers Similar to those Contained in Sections 70, 71 & 72 of the Uniform Credit Code, Modified so as not to Disadvantage DSH Clients
The DSH Act is amended to incorporate most of the provisions in Sections 70, 71 and 72 of the Consumer Credit (Queensland) Act 1994 which form the basis of all States' and Territories' Consumer Credit Acts.
Section 70 of the Code provides for a Court to re-open unjust credit transactions. In deciding whether a term of a contract was unjust, the court may have regard to a number of factors. One such factor is the age of the mortgagor.
Under the agreement between the Commonwealth and the Bank, the Bank is not obliged to make an advance unless the lending criteria in Schedule 'C' to the Agreement are satisfied. Schedule 'C' contains the criteria which are to be applied. These criteria differ from the Bank's normal lending criteria. As the age of the borrower is excluded from Schedule C, the Bank is specifically prohibited from taking age into account. The effect of this is that the Bank may be obliged to make a loan under a Commonwealth Scheme but in doing so, may put itself at jeopardy under a State law.
To avoid this, the Bank is exempted from Section 70 of the Code by the amendment to the DSH Act mirroring Section 70 but for changes necessary to reflect the special provisions of the DSH Act and Agreement. The changes are detailed as follows.
Section 70(2) of the Code lists matters (a) to (o) which may be considered by the Court in determining whether a particular credit contract, mortgage or guarantee is unjust. Sub paragraph (f) provides:
'(f) whether or not the debtor, mortgagor or guarantor, or a person who represented the debtor, mortgagor or guarantor, was reasonably able to protect the interests of the debtor, mortgagor or guarantor because of his or her age or physical or mental condition;'
The DSH Act equivalent of Sub-section 2(f) of the Code will apply:
(a) in full only to third party mortgagors or guarantors; and
(b) in part to borrowers - that is, only in respect of physical or mental condition, not in respect of age.
Without this limited application, the policy of excluding the applicant's age as a factor in granting a loan would be undermined. Further, if the Code provision were inserted as is, the Court may give the clause a wider meaning than is intended.
For the same reasons, Sub-section 70(2)(l) of the Code is not mirrored in the proposed amendments. That sub-section allows the Court to consider whether at the time the contract was entered into, the borrower would not have been able to repay the loan in accordance with its terms at all, or not without 'substantial hardship'. The inclusion of a similar provision would conflict with the policy of not considering the applicant's age when granting loans.
A list of further matters to be considered by the Court under this section has been added. These are that:
(a) the Bank and the Commonwealth have entered into an agreement for the provision by the Bank of Subsidised Advances;
(b) the Bank is required to provide a Subsidised Advance if the requirements of the Act and the Agreement are satisfied;
(c) the interest rate applicable to a Subsidised Advance is determined by the Act; and
(d) in some circumstances, the Bank would not provide advances to an Eligible Person if the advance was assessed on ordinary commercial lending criteria rather than the criteria set out in the Act or the Agreement.
A provision has also been included that the Court is not to have regard to:
(a) any inequality in bargaining power between the Bank and the borrower which arises because an Eligible Person who wishes to obtain a Subsidised Advance may only apply to the Bank and not another financial institution for that Subsidised Advance; and
(b) the age of the borrower.
Sub-section 70(6) of the Code describes the circumstances in which s70 does not apply. The DSH amendment provides that the section does not apply to:
(a) a change to a contract brought about by a change to the DSH Act, any other Act or the Agreement;
(b) a contract where the borrower is not an individual or where the purpose of a loan is not predominantly for personal, domestic or household purposes; and
(c) a contract, mortgage or guarantee entered into before the commencement date.
The DSH amendment also provides that it is not possible for a borrower to seek review of interest charges payable in accordance with the Act on the grounds they are unjust or unconscionable. This is necessary because:
(a) the interest calculation method set out in Clause 8.1 of the Agreement may produce an amount of interest which exceeds that permitted by Section 26(1) of the Code; and
(b) in any event, it is possible that interest rates prescribed by the Act may exceed market rates.
Section 71 of the Code which deals with the powers of the Court if it does re-open a transaction is reflected in the DSH Act.
Likewise, Section 72 of the Code in so far as it relates to fees and charges (but not interest rates) is reflected in the DSH Act.
These matters are dealt with by inserting new provisions into the DSH Act under the following headings:-
Sub-sections 23A Power to reopen unjust transactions
23B Matters to be considered by court
23C Unforeseen circumstances
23D Conduct
23E Orders on reopening transactions
23F A court may review unconscionable fees and charges
23G Time limit
23H Exceptions
(iii) New Provision to Provide Access to Legal Aid
An amendment to the Defence Service Homes Act 1918 (new Subsection 23J) provides for access to Legal Aid to clients wishing to re-open transactions under the new provision.
(iv) New Provision to Specify Appropriate Court for Hearing Disputes
An amendment to the Defence Service Homes Act 1918 (new Subsection 23K) provides for an appropriate court to hear cases brought under the new re-opening provision, bearing in mind that some clients will have DSH loans and 'top-up' finance secured under the one mortgage.
(v) Change in Interest Charges from Monthly to Daily Balances
Clause 8.1 of the Agreement between the Commonwealth of Australia and the Westpac Banking Corporation provides for interest on subsidised advances to be calculated on the outstanding principal at the end of the preceding month.
Section 26 of the Code provides that the maximum interest charge that may be imposed is the amount determined by applying the daily percentage rate on unpaid daily balances.
The daily balance interest charge method is regarded as more favourable for clients than is the monthly balance charge method.
Accordingly, the DSH Act amendment (new Subsection 35A) will allow the Agreement to impose interest on unpaid daily loan balances rather than on unpaid monthly balances for all existing and future DSH loans. Section 45 of the Act which currently nullifies any attempted change of Clause 8.1 of the Agreement is specifically addressed by new Subsection 45(2). The restriction on changing Clause 8.1 will be re-imposed after the change is made. As the method and timing of subsidy verification and payment will also be changing from monthly in advance to monthly in arrears, several of the sub-clauses of Clause 11 of the Agreement will also require amendment. As they too are restricted by the provisions of Section 45 of the Act, the legislative amendment addresses this restriction and re-imposes it three months after Royal Assent to the Bill.
These changes, together with the commencement clauses in Item 7 of the amending Act, provide that the Bank will charge interest on new DSH loans based on the daily balance method from 1 November 1996. They also provide for the conversion of the existing loan portfolio to the daily balance method of interest calculation from 1 June 1997. Each contract between the Bank and a borrower affected by the change will be amended by force of law. A joint Westpac/DSH letter explaining the change will be sent via a mail-out to all existing borrowers a month or so prior to the change.
(vi) Change in Rest Days
The amending legislation (Subsection 35A para (2)) makes special provision for the change in 'Rest Days' for Specified Portfolio Assets from the 1st to the 5th of the month, to align them with the 'Rest Days' for Subsidised Advances. The legislation will override the terms of all existing mortgage documentation. This change will occur on 1 June 1997 moving that rest day to the 5th of June. This will mean that after 5 June 1997, the monthly repayments on all DSH loans will be due on the 5th of the month.
Summary of Impact
The Code commenced on 1 November 1996. Associated amendments to the Defence Service Homes Act 1918 also commenced with effect from that date.
This means that we will need to be mindful of the implications of the Code in our dealings with members of the veteran community on any financial credit issue, including maintaining an awareness of their consumer rights under the law.
The impact for the DSH Scheme is that from 1 November 1996, new DSH loans will have loan interest calculated on the daily balance method rather than the current monthly balance method. The existing 100,000 loans will remain under the monthly balance method until 1 June 1997, at which time they will be converted to the daily balance method.
At the time of the conversion, the timing of verification and payment of the monthly subsidy claim will change from being in advance to being in arrears. The usual monthly payment for June 1997 therefore will not occur. The July 1997 subsidy payment will represent payment in arrears from the end of the period covered by the May 1997 payment.
The change in the 'Rest Days' for specified portfolio assets from the 1st to the 5th of the month will also occur on 1 June 1997. This will mean that after that date, the monthly repayments on all DSH loans will be due on the 5th of the month.
DSH staff will need to exercise due caution in any of their dealings which implicate or affect the Bank and be mindful of the Indemnity clauses in the Agreement.
Local forms used and all advertising material must be cleared through the National Office in the first instance. If necessary, they will be cleared through Westpac as well.
Amendments to the General Orders
Amendments to the General Orders will be promulgated once the proposed changes to the Agreement are finalised.
Effect on Previously Issued NOI's
This instruction has no effect on previously issued NOIs.
KERRY BLACKBURN
Branch Head
Housing & Community Support
13 November 1996
National Office Instruction
amending General Orders (1993 edition)
Instruction No. 50
Date of Effect: 1 August 1996
Purpose
The purpose of this Instruction is to draw to attention the need to exercise caution before disclosing certain information about applicants to spouses and vice versa, even though they may be proposed joint tenants.
Background
A recent complaint to the Privacy Commissioner has highlighted the need for more caution with certain information about a veteran that his/her spouse may not have been aware of and vice versa if applicable.
In the case in hand, the applicant's service records showed that he had a period of leave without pay which reduced his effective service to less than the required minimum period necessary to establish eligibility for a DSH loan. When the veteran's wife phoned to find out the progress of the application, she was advised of the deficiency in her husband's service. The veteran's leave without pay was something that he had never disclosed to his wife and he considered it a breach of his privacy for us to have disclosed it to her.
It is understandable as to how this disclosure arose because the eligible person and spouse were joined under Section 4A and treated together as an eligible person accordingly. Either one of the parties enquiring about the application has the authority in that sense to be asking about its progress. However, in hindsight, disclosure of personal information about the other party should not have occurred.
Administrative Framework and Decision Making General Order 3.1 currently prohibits the disclosure of information which is properly confidential to one party only where the party to whom the information relates has indicated that the information is not to be released. This GO needs amendment in the light of this recent case.
Policy to be applied
It is prudent that we consider more carefully what information may be released to a spouse. There should be no problem in discussing the stages of application processing with either party. If, however, the process is affected by the personal circumstances of either party, discussions on the particular matter should only occur with that person. For example, if a service check reveals a period of leave without pay, absence without leave or other breaches of discipline, a medical related premature discharge, or that the veteran did not serve in an area as claimed, then those details are only to be disclosed to the veteran. An enquiring spouse should be informed that there is a delay in finalising the application and requested to ask the veteran to contact our office as a matter of some urgency. The details could then be discussed with the veteran without the risk of a breach of confidence.
General Orders
Attached are amended pages for the Administrative Framework and Decision Making General Orders. Please replace the existing pages 5-6 with the amended version.
Effect on previously issued NOIs
This Instruction has no effect on any previously issued operative NOI.
KERRY BLACKBURN
Branch Head
Housing & Community Support
31 July 1996
National Office Instruction
amending DSH General Orders (1993 edition)
Instruction No. 49
Date of Effect: On receipt
Purpose
The purpose of this instruction is to clarify the policy to be applied in cancelling the subsidy payable in respect of a subsidised loan where the subject property is part of a deceased estate and there is no surviving spouse.
Background
The change to the administration of Defence Service Homes (DSH) subsidised loans to allow the cancellation of subsidy in deceased estate cases was announced in the May 1995 Budget. The amending legislation received Royal Assent on 14 November 1995. The amendments providing for cancellation of subsidy in deceased estate cases came into effect on the same day.
There are currently cases where there is a leakage of the benefit of DSH subsidised loans to ineligible persons. This occurs in deceased estates where there is no surviving eligible beneficiary.
The general thrust of section 22 of the Defence Service Homes Act 1928 (the Act) is to require the issue of a Certificate of Entitlement in respect of any proposed transfer of property which is subject to either a specified portfolio asset vested in the Westpac Banking Corporation (the Bank) or other security securing a subsidised advance. Subsection 22(3) of the Act specifically requires that a Certificate of Entitlement under section 22 may only be issued to a proposed transferee who is an eligible person. Under subsection 22(4) such a Certificate of Entitlement remains in force until the subsidy to which it relates ceases to be payable under the Act.
However, subsection 22(7) of the Act permits certain transfers to take place without a Certificate of Entitlement, including actions necessary to assist in the administration of deceased estates. A delay in the administration of the estate has to date, allowed the benefit of the subsidised loan to continue. As a result, ineligible persons have been receiving subsidised loan benefits under the DSH Act.
Policy to be applied
The Veterans' Affairs (1995-96 Budget Measures) Legislation Amendment Act 1995 inserted a new Section 27A into the Defence Service Homes Act 1918. Section 27A provides for the cancellation of a subsidy three months from the date of death of the last surviving member of a 'veteran/ spouse couple'. The legislation also provides for the Bank, upon cancellation of subsidy, to charge an interest rate in relation to the advance that is an interest rate applicable to similar loans provided by the Bank to mortgagors generally.
The powers of the Secretary are discretionary. As a matter of policy, the power is to be exercised in every case unless there are special circumstances. Special circumstances may be considered to exist where the deceased is survived by dependants who were dependent upon the deceased for their housing needs at the time of death. As an example, it is not intended that subsidy will be cancelled where the deceased veteran and widow are survived by children who are minors or who have a disability to the extent that they were dependent upon the deceased for their housing needs immediately before the death of the last surviving parent.
Staff will need to be sensitive to the needs of clients when dealing with cases involving cancellation of subsidy. Following advice of the death of the last surviving member of a 'veteran /spouse couple', the file should be carefully examined for evidence which might suggest the presence of special circumstances. In those cases where the subsidised loan is in a single name, the file should also be examined for evidence of a surviving spouse. In both instances, reference should be made to the Departmental CMS mainframe system, Insurance records and any other source available.
Procedures for handling these cases have been drafted according to whether the circumstances attracting cancellation of subsidy occurred before ("existing cases") or after ("future cases") the effective date of this NOI. Please see Attachments A and B.
Delegates will be expected to use their discretion in the timing of the initial advice to the estate and for any requests for an extension of time before cancellation. Special circumstances have not been defined and the examples given are not exhaustive. Claims for special circumstances should be treated sensitively and consistent with the philosophy supporting beneficial legislation. Decisions to cancel subsidy are reviewable decisions.
In the event of a successful claim for special circumstances, delegates may, having regard to the particular circumstances of the case, set a review period or require advice of changed circumstances to be provided.
Advice to Westpac Banking Corporation
The Bank should be kept advised at all stages of the process. Early advice of our intention to cancel subsidy will allow the Bank the opportunity of recapturing outgoing business. Advice to the Bank of cancellation of subsidy is a legislative requirement.
Standard Letters System
Basic letters and the Notice of Cancellation have been included in the Standard Letters System. Samples are shown at Attachments C - G.
Reporting
In order to gauge the impact of this NPP a reporting format has been included with this NOI. This manual report, shown at Attachment H, will be replaced by a system generated one when the Management Information Module of NewCELS is introduced. Please forward a copy of the report to this office each month until further notice.
General Orders
An amended Entitlement GO 10.14 is attached. Please replace the existing version with the amendment. Subsidy Administration GO 6.2.2.1 which was issued under NOI 47 of 25 January 1996 also refers.
Effect on previously issued NOI's
This instruction has no effect on any previously issued effective National Office Instruction.
KERRY BLACKBURN
Branch Head
Housing & Community Services
12 July 1996
Attachment A
CANCELLATION of SUBSIDY - DECEASED ESTATES
PROCEDURES: EXISTING CASES
1. Arrange for MT (or equivalent) to run program which will report all deceased estate cases within financial groupings. (Suggested break-up: less than $1,000; $1,000 - $5,000; $5001 - $9,999; equal to or greater than $10,000. Case action would start with the equal to or greater than $10,000 group and work down to the less than $1,000 group. By the time cancellation action reaches cases in the last group, a number of these cases will have discharged automatically. (A refinement could include breaking the last group into $1 - $499 and $500 - $999.)
2. Obtain files and peruse available information to determine that a surviving spouse does not exist. Reference should be made to the Departmental mainframe system CMS, Insurance records and any other source available. If prima facie evidence shows that special circumstances may exist, further investigation should be undertaken. It is not necessary to issue a formal 'Letter of Intention to Cancel Subsidy' for the purpose of gaining information. A delegate should try to obtain sufficient information to determine that special circumstances exist before a formal letter is issued.
3. The 'Letter of Intention to Cancel Subsidy' is contained within the Standard Letters System. The letter should be completed according to the circumstances of the case and addressed to the Executor/Administrator/person responsible for managing the property. A copy of the letter should be sent to the DSH Westpac Liaison Unit in Sydney to give the Bank sufficient warning of the change. (Clause 11.16 of the Agreement refers.) After dispatch, the file may be resubmitted for two weeks.
No Claim for Special Circumstances
4. Once 2 weeks from the date of the Letter of Intention to Cancel Subsidy has passed, a formal Notice of Cancellation of Subsidy should be sent, and a copy forwarded to the DSH Westpac Liaison Unit in Sydney. Subsidy will be cancelled with effect from the date in the Notice (being a date 3 months from the date of the first 'Letter of Intention to Cancel Subsidy').
5. The decision to cancel is a reviewable decision under section 43 of the DSH Act, and may therefore be reviewable by the AAT. Accordingly, the letter enclosing the formal Notice of Cancellation of Subsidy should include details of appeal rights.
6. In the event that the appeal process (Internal Review & AAT) is finalised in favour of DSH after the date set out in the Letter of Intention to Cancel Subsidy, subsidy will be cancelled with effect from the next subsidy claim. A formal Notice of Recovery of Subsidy will need to be prepared and forwarded to the Executor/Administrator/person responsible for managing the property recovering subsidy paid between the date set out in the Notice of Cancellation of Subsidy and the date when subsidy will cease.
Claim for Special Circumstances Received
7. If a claim for special circumstances is made, a delegate should review the details, including undertaking any further investigation if required. If the circumstances are not regarded as 'special', advice of the decision to cancel subsidy, including a Statement of Reasons, should be forwarded to the claimant together with advice of appeal rights and a formal Notice of Cancellation of Subsidy.
8. In the event that the appeal process (Internal Review & AAT) is finalised in favour of DSH after the date set out in the Letter of Intention to Cancel Subsidy, subsidy will be cancelled with effect from the next subsidy claim. A formal Notice of Recovery of Subsidy will need to be prepared and forwarded to the Executor/Administrator/person responsible for managing the property recovering subsidy paid between the date set out in the Notice of Cancellation of Subsidy and the date when subsidy will cease.
9. Should the claim for special circumstances succeed, advice that subsidy will continue is to be forwarded to the Executor/Administrator/person responsible for managing the property. Similar advice should be forwarded to Westpac.
Attachment B
CANCELLATION of SUBSIDY - DECEASED ESTATES
PROCEDURES: FUTURE CASES
1. Receive advice of death of survivor or sole tenant. Obtain file and peruse available information. (In sole tenant cases, to determine that a surviving spouse does not exist.) Reference should be made to the Departmental mainframe system CMS, Insurance records and any other source available. If prima facie evidence shows that special circumstances may exist, further investigation should be undertaken. A delegate should try to obtain sufficient information to determine that special circumstances exist before a formal letter is issued.
2. The Letter of Intention to Cancel Subsidy should be forwarded to the personal representative of the Estate approximately six weeks after the date of death. This is considered to be a reasonable period following the death of the client.
3. The Letter of Intention to Cancel Subsidy is contained within the Standard Letters System. The letter should be completed according to the circumstances of the case. A copy of the letter should be sent to the DSH Westpac Liaison Unit in Sydney to give the Bank sufficient warning of the change. (Clause 11.16 of the Agreement refers.) After dispatch, the file may be resubmitted for two weeks.
No Claim for Special Circumstances
4. Once two weeks from the date of the Letter of Intention to Cancel Subsidy has passed, a formal Notice of Cancellation of Subsidy should be sent, and a copy forwarded to the DSH Westpac Liaison Unit in Sydney. Subsidy will be cancelled with effect from the date in the Notice (being a date 3 months from the date of death).
5. The decision to cancel is a reviewable decision under section 43 of the DSH Act, and may therefore be reviewable by the AAT. Accordingly, the letter enclosing the formal Notice of Cancellation of Subsidy should include details of appeal rights.
6. In the event that the appeal process (Internal Review & AAT) is finalised in favour of DSH after the date set out in the Letter of Intention to Cancel Subsidy, subsidy will be cancelled with effect from the next subsidy claim. A formal Notice of Recovery of Subsidy will need to be prepared and forwarded to the Executor/Administrator/person responsible for managing the property recovering subsidy paid between the date set out in the Notice of Cancellation of Subsidy and the date when subsidy will cease.
Claim for Special Circumstances Received
7. If a claim for special circumstances is made, a delegate should review the details, including undertaking any further investigation if required. If the circumstances are not regarded as 'special', advice of the decision to cancel subsidy, including a Statement of Reasons, should be forwarded to the claimant together with advice of appeal rights and a formal Notice of Cancellation of Subsidy.
8. In the event that the appeal process (Internal Review & AAT) is finalised in favour of DSH after the date set out in the Letter of Intention to Cancel Subsidy, subsidy will be cancelled with effect from the next subsidy claim. A formal Notice of Recovery of Subsidy will need to be prepared and forwarded to the Executor/Administrator/person responsible for managing the property recovering subsidy paid between the date set out in the Notice of Cancellation of Subsidy and the date when subsidy will cease.
9. Should the claim for special circumstances succeed, advice that subsidy will continue is to be forwarded to the Executor/Administrator/person responsible for managing the property. Similar advice should be forwarded to Westpac.
Attachment C
INTENTION TO CANCEL SUBSIDY
(EXISTING CASES)
DSH Subsidised Loan Property: ADDRESS
Westpac Account No.(s):
I am writing to advise you of changes to the administration of Defence Service Homes (DSH) subsidised loans which will affect you. These changes were announced in the May 1995 Budget and came into effect on 14 November 1995 when the amending legislation received Royal Assent.
As a result, the Defence Service Homes Act 1918 (the Act) now provides for the cancellation of subsidy from a date three months after the death of the last surviving member of an eligible couple. This is intended to prevent the leakage of the benefit of a DSH subsidised loan to ineligible persons. This occurs in deceased estates where there is no surviving eligible beneficiary.
Our records indicate that the DSH subsidised loan was originally granted in YEAR to FULL NAME OF ELIGIBLE PERSON and FULL NAME OF SPOUSE. Subsequently, XXXX died in YEAR and YYYY died in YEAR. Currently, the property at ADDRESS is in the name of the DECEASED ESTATE and you are the Executor / Administrator / person responsible for managing the property. The amount of subsidised loan(s) outstanding is $$$$.cc as at DATE.
Optional - (Single Name - No Known Spouse) Our records indicate that the DSH subsidised loan was originally granted in YEAR to FULL NAME OF ELIGIBLE PERSON. Subsequently, XXXX died in YEAR. Currently, the property at ADDRESS is in the name of the DECEASED ESTATE and you are the Executor/Administrator/person responsible for managing the property. The amount of subsidised loan(s) outstanding is $$$$.cc as at DATE.
Optional - (Single Name Following Transfer) Our records indicate that the DSH subsidised loan was transferred in YEAR to FULL NAME OF ELIGIBLE PERSON following the death of FULL NAME OF SPOUSE. Subsequently, XXXX died in YEAR. Currently, the property at ADDRESS is in the name of the DECEASED ESTATE and you are the Executor/Administrator/person responsible for managing the property. The amount of subsidised loan(s) outstanding is $$$$.cc as at DATE.
Please note that, in accordance with the provisions of the Act, it is our intention to cancel the subsidy payable in respect of the subsidised loan secured over the property at ADDRESS. Formal notice of the cancellation will be issued to you shortly to take effect three months after the date of this letter. This period of time should be sufficient to allow you to make whatever financial arrangements may be considered necessary before subsidy is cancelled.
The Secretary of the Department of Veterans' Affairs has a discretion not to cancel subsidy in special circumstances. As an example, it is not intended that subsidy should be cancelled where the deceased veteran and widow are survived by children who are minors, or who have a disability to the extent that they were dependent upon the deceased for their housing needs immediately before the death of the last surviving parent. If you believe that special circumstances exist in your case, please advise me in writing within 14 days.
In the event of cancellation of subsidy, the legislation provides that Westpac Banking Corporation may charge an interest rate in relation to the amount outstanding that is applicable to similar loans provided by the Bank. That is, the loan may be continued but at the current Bank interest rate and without the Commonwealth subsidy from the Defence Service Homes Scheme or the loan may be terminated, in which case you would need to apply for a new loan. Alternatively, you may wish to discharge the loan completely, or re finance the loan through another lending institution. You should discuss your options with a loans officer at your local Westpac Branch. The Bank has been advised of our intention to cancel subsidy. Please advise me of your decision as soon as possible.
If you have any questions regarding this letter, please do not hesitate to contact me on the telephone number at the top of this letter. Country callers may use Freecall NUMBER.
Attachment D
INTENTION TO CANCEL SUBSIDY
(FUTURE CASES)
DSH Subsidised Loan Property: ADDRESS
Westpac Account No.(s):
I understand that you are the Executor/Administrator/person responsible for managing the property for the Estate of the late FULL NAME. Please accept my condolences on your recent bereavement.
I am writing to advise you of changes to the administration of Defence Service Homes (DSH) subsidised loans which will affect you. These changes were announced in the May 1995 Budget and came into effect on 14 November 1995 when the amending legislation received Royal Assent.
As a result, the Defence Service Homes Act 1918 (the Act) now provides for the cancellation of subsidy from a date three months after the death of the last surviving member of an eligible couple. This is intended to prevent the leakage of the benefit of a DSH subsidised loan to ineligible persons. This occurs in deceased estates where there is no surviving eligible beneficiary.
Our records indicate that the DSH subsidised loan was originally granted in YEAR to FULL NAME OF ELIGIBLE PERSON and FULL NAME OF SPOUSE. Subsequently, XXXX died in YEAR and YYYY died in YEAR. The amount of subsidised loan(s) outstanding is $$$$.cc as at DATE.
Optional - (Single Name - No Known Spouse) Our records indicate that the DSH subsidised loan was originally granted in YEAR to FULL NAME OF ELIGIBLE PERSON. Subsequently, XXXX died in YEAR. The amount of subsidised loan(s) outstanding is $$$$.cc as at DATE.
Optional - (Single Name Following Transfer) Our records indicate that the DSH subsidised loan was transferred in YEAR to FULL NAME OF ELIGIBLE PERSON following the death of FULL NAME OF SPOUSE. Subsequently, XXXX died in YEAR. The amount of subsidised loan(s) outstanding is $$$$.cc as at DATE.
Please note that, in accordance with the provisions of the Act, it is our intention to cancel the subsidy payable in respect of the subsidised loan secured over the property at ADDRESS. Formal notice of the cancellation will be issued to you shortly to take effect three months after the date of death of XXXX. This period of time should be sufficient to allow you to make whatever financial arrangements may be considered necessary before subsidy is cancelled.
The Secretary of the Department of Veterans' Affairs has a discretion not to cancel subsidy in special circumstances. As an example, it is not intended that subsidy should be cancelled where the deceased veteran and widow are survived by children who are minors, or who have a disability to the extent that they were dependent upon the deceased for their housing needs immediately before the death of the last surviving parent. If you believe that special circumstances exist in your case, please advise me in writing within 14 days.
In the event of cancellation of subsidy, the legislation provides that Westpac Banking Corporation may charge an interest rate in relation to the amount outstanding that is applicable to similar loans provided by the Bank. That is, the loan may be continued but at the current Bank interest rate and without the Commonwealth subsidy from the Defence Service Homes Scheme or the loan may be terminated, in which case you would need to apply for a new loan. Alternatively, you may wish to discharge the loan completely, or re finance the loan through another lending institution. You should discuss your options with a loans officer at your local Westpac Branch. The Bank has been advised of our intention to cancel subsidy. Please advise me of your decision as soon as possible.
If you have any questions regarding this letter, please do not hesitate to contact me on the telephone number at the top of this letter. Country callers may use Freecall NUMBER.
Attachment E
LETTER OF CANCELLATION
(NO ADVICE FROM ESTATE)
DSH Subsidised Loan Property: ADDRESS
Westpac Account No.(s):
I refer to my letter of DATE advising you of my intention to cancel the subsidy payable in respect of the subsidised loan(s) secured over the property at ADDRESS.
From a perusal of our records I have found that the requirements of section 27A of the Defence Service Homes Act 1918 (the Act) have been met. That is to say, the eligible person and spouse, who were the original borrowers, are both deceased. No claim in writing regarding special circumstances has been received in this office.
(Optional - Single Name - No Known Spouse) From a perusal of our records I have found that the requirements of section 27A of the Defence Service Homes Act 1918 (the Act) have been met. That is to say, the person, who was the original borrower, is deceased, and there is no evidence of a surviving spouse. No claim in writing regarding special circumstances has been received in this office.
(Optional - Single Name Following Transfer) From a perusal of our records I have found that the requirements of section 27A of the Defence Service Homes Act 1918 (the Act) have been met. That is to say, the eligible person, who was the borrower following transfer, is deceased, and there is no evidence of a surviving spouse. No claim in writing regarding special circumstances has been received in this office.
Therefore, in accordance with the provisions of the Act, I have determined that the subsidy payable in respect of the subsidised loan(s) secured over the property will be cancelled with effect from DATE (3 months from date of first letter of intent for existing cases and 3 months from date of death for future cases). A copy of the formal Notice of Cancellation is enclosed, which has also been forwarded to Westpac Banking Corporation.
You have a right to apply for a review of this decision by a senior delegate of the Secretary of the Department of Veterans' Affairs. Should you decide to apply you must do so in writing within 30 days of receipt of this advice and send your application to:
The Secretary
Department of Veterans' Affairs
ADDRESS
Attachment F
LETTER OF CANCELLATION
(SPECIAL CIRCUMSTANCES CLAIMED)
DSH Subsidised Loan Property: ADDRESS
Westpac Account No.(s):
I refer to your letter of DATE which detailed the circumstances you provided in support of your claim for continuing the subsidy payable in respect of the subsidised loan(s) secured over the above property. I have reviewed the information you have provided in the light of the policy pertaining to the legislation.
From a perusal of our records I have found that the requirements of section 27A of the Defence Service Homes Act 1918 (the Act) have been met. That is to say, the eligible person and spouse, who were the original borrowers, are both deceased.
Optional - (Single Name - No Known Spouse) From a perusal of our records I have found that the requirements of section 27A of the Defence Service Homes Act 1918 (the Act) have been met. That is to say, the eligible person, who was the original borrower, is deceased, and there is no evidence of a surviving spouse.
Optional - (Single Name Following Transfer) From a perusal of our records I have found that the requirements of section 27A of the Defence Service Homes Act 1918 (the Act) have been met. That is to say, the eligible person, who was the borrower following transfer, is deceased, and there is no evidence of a surviving spouse.
In considering your claim, I have concluded that your particular circumstances could not be construed as special circumstances. My reasons for this decision are attached.
Therefore, in accordance with the provisions of the Act, I have determined that the subsidy payable in respect of the subsidised loan(s) secured over the property will be cancelled with effect from DATE (3 months from date of first letter of intent for existing cases and 3 months from date of death for future cases). A copy of the formal Notice of Cancellation is enclosed, which has also been forwarded to the Westpac Banking Corporation.
You have a right to apply for a review of this decision by a senior delegate of the Secretary of the Department of Veterans' Affairs. Should you decide to apply you must do so in writing within 30 days of receipt of this advice and send your application to:
The Secretary
Department of Veterans' Affairs
ADDRESS
Attachment G
DEFENCE SERVICE HOMES ACT 1918
NOTICE OF CANCELLATION
TO: Executor/Administrator/person responsible for managing the property
ADDRESS:
In accordance with Section 27A of the Defence Service Homes Act 1918 I, (FULL NAME OF DELEGATE), a Delegate of the Secretary of the Department of Veterans' Affairs, HEREBY GIVE NOTICE that the subsidy payable in respect of the subsidised loan(s) secured over the property at (ADDRESS) shall be cancelled on the DATE.
Dated this DD day of MONTH YEAR
(NAME OF DELEGATE)
Delegate of the Secretary of the
Department of Veterans' Affairs
Attachment H
CANCELLATION of SUBSIDY
DECEASED ESTATES MONTHLY REPORT
Month:
TARGET BASE
Cases Identified |
||||
Cumulative |
||||
Database search |
After File Examination |
|||
CURRENT WORK
Letters of Intent Sent |
Appeals Received |
Cancellation Notices Sent |
|||
This Month |
Cumulative |
This Month |
Cumulative |
This Month |
Cumulative |
SUBSIDY CANCELLED
File No. |
Name |
Acct No/s |
Loan Type |
Date of Effect |
Balance |
Limit Reduction Amount |
Last Subsidy Amount |
Balance of Term |
APPEALS SUCCESSFUL
File No. |
Name |
Acct No/s |
Loan Type |
Balance |
Last Subsidy Amount |
Balance of Term |
Reasons |
Note: Manual recording will need to continue each month please until the implementation of NewCels.
National Office Instruction
amending General Orders (1993 edition)
Date of Effect: Immediate
ile No. 95/1497
DSH BUDGET MEASURES - 1 JULY 1995
AMENDMENTS TO THE DEFENCE SERVICE HOMES ACT 1918 BY THE VETERANS' AFFAIRS (1995-96 BUDGET MEASURES) LEGISLATION AMENDMENT ACT 1995
Purpose
The purpose of this instruction is to explain the effects of the amending legislation covering the changes to the DSH Scheme announced in the Budget of 9 May 1995.
Background
Details of the Budget measures were forwarded on 9 May 1995. The Defence Service Homes Act 1918 was amended by the Veterans' Affairs (1995-96 Budget Measures) Legislation Amendment Act 1995. The amending legislation received Royal Assent on 14 November 1995. All measures are to apply retrospectively from 1 July 1995 with the exception of the cancellation of subsidy in relation to deceased estates which is to apply from the date of Royal Assent.
The May 1995 DSH Budget measures were:
1. Assistance under the Defence Service Homes Act 1918 where title is to be held as tenants in common;
2. Assistance under the Defence Service Homes Act 1918 where title is a company title or leasehold;
3. Issue of generic certificates of entitlement under the Defence Service Homes Act 1918;
4. Extension of pool of persons eligible to insure dwelling-houses under the Defence Service Homes Act 1918;
5. To redefine terms and to stabilise interest rates for further advances under the Defence Service Homes Act 1918;
6. Extension of eligibility for Defence Service Homes benefits to full time members of the World War II Women's Services;
7. Allow the assignment of a DSH loan entitlement to certain providers of retirement village accommodation and persons providing "granny flat" accommodation to eligible persons;
8. Cancellation of payment of subsidy in respect of deceased estates where there is no surviving spouse.
Policy to be applied
Details of the policy to be applied and where relevant, of procedures to be followed, for each of the measures are set out below.
1. Assistance under the Defence Service Homes Act 1918 where title is to be held as tenants in common;
2. Assistance under the Defence Service Homes Act 1918 where title is a company title or leasehold;
These measures relate to the form of title and the manner in which it is held by clients.
The rule to be applied when processing cases involving tenancies in common is that the tenancy value must equal or exceed the amount of the subsidised advance. The tenancy value represents the client's share of the total property value.
Where applicants and spouses are seeking assistance jointly as is more often the case, unless they specifically request assistance as tenants in common, they should be joined under section 4A and the certificates issued in joint names. Thus subsection 4A(3) requiring joint tenancy will still apply. If however, on return of the C of E it is noticed that the property is under a tenancy in common, the file should be noted that the decision to join the spouse with the eligible person under section 4A is set aside. The tenancy value should also be examined and the file noted that the tenancy value is adequate if appropriate. This will satisfy new subsection 17A(2).
Where a certificate of entitlement is to be issued for a single tenancy or tenancy in common, the certificate is to be issued in the single name of the eligible person. If the certificate relates to a tenancy in common, the Bank will require a mortgage from all of the tenants in common. If, on return of the certificate from the Bank it is evident that the loan was provided in relation to a joint tenancy ownership, instead of requiring a fresh application and issuing a new certificate, it will be necessary to first of all establish whether the other joint tenant is a spouse. If the joint tenant is a spouse, the file should be noted that the parties have been joined under section 4A. The joint tenancy will also need to be recorded in the property details on the 'Returned C of E Screen'. In addition, the spouse's details will need to be recorded in the 'Spouse Details Screen'. A note should be keyed into the 'Notepad' indicating that the spouse has been joined under section 4A after the certificate was issued. These arrangements will overcome the need for a fresh application, cancellation and re-instatement of subsidy etc. If the other joint tenant is not a spouse, it will be necessary to point out the legislative provisions and require the client to remedy the situation, ie arrange an appropriate transfer. The legislation does not allow joint tenancies with parties other than spouses.
These procedures are necessary due to a basic underlying legal principle in paragraph 18(1)(a) that certificates may be issued only to eligible persons and husbands or wives of eligible persons who are temporarily or permanently insane. Unless joined under section 4A, or the eligible person is insane, spouses of living eligible persons are not eligible, unless they have performed their own military service. It is not for anyone other than a delegate of the Secretary to apply section 4A. A loan provided not in accordance with the certificate is potentially a breach of Clause 7.3 of the Agreement and could result in termination of subsidy under Clause 11.15 of the Agreement.
Please note that the computer system is designed to prevent the issue of certificates where ownership is to be held as tenants in common, unless details regarding equity value and total cost of proposal are entered into the system. This is to help delegates focus on the equity value requirement as laid down in new subsection 17A(2). Where applicants are seeking assistance as tenants in common and haven't yet selected a property, it will be necessary to point out the equity value requirement, then key estimated figures into the system based on the applicants' advice.
Where a certificate is issued for a single tenancy acquisition and upon return of the certificate from the Bank it is evident that the purchase was made as a tenancy in common, the eligible person's tenancy value needs to be examined to ensure that it is adequate. The file should be appropriately noted to this effect. This will also satisfy subsection 17A(2).
The only other circumstance where certificates are to be issued in joint names is where both the applicant and the other joint tenant is the applicant's wife or husband who is also an eligible person. This is not to say that both use their entitlement by this action if only one party applies, as the definitions of Initial and Further Advances in section 4 protect the unused spouse's entitlement. What it does mean is that it is not allowable for unrelated eligible persons to be assisted under joint tenancies, and sets aside the policy on this issue contained in COI 14. Eligible persons seeking assistance with persons other than spouses, including where the other non-spouse parties are themselves eligible, may only be provided under a tenancy in common. This is to protect the leakage of the benefit by the rules of survivorship on death of the eligible person.
It is important that applicants be advised of these rules when they enquire about assistance. If clients are unaware of the implications of joint tenancy v. tenancy in common, the implications should be explained and legal advice suggested. It should be stressed that the decision is theirs to make
The amending legislation also provides for assistance where the title to the property is in the form of a company title. This will provide greater flexibility of choice for clients seeking medium density housing, some of which was established before strata titles became available.
The extension of assistance to tenants in common and for company titles has implications for the test of ownership of other homes. Since the issue of COI 133 in May 1987 the policy has been that ownership by the applicant or spouse in a form which would be regarded as sufficient to grant a loan would prevent the granting of a loan in respect of another property. The test was two pronged. Firstly, the property must have been a suitable security and secondly, the person or persons holding an interest must have been in the categories of persons to whom a loan could have been granted. This policy was explained in more detail in Entitlement GO 3.7.5. This test of ownership was based upon the legislation that existed at the time. To continue to hold to the same test would now seem to lack that legislative backing. Paragraphs 18(1)(b) and (e) covering ownership are quite specific. The real question is whether the applicant or the applicant's wife or husband own another dwelling house or have a right of residence in a retirement village other than the dwelling-house or right of residence in respect of which the advance is to be payable.
Joint Tenancy is where land is owned by two or more persons concurrently under the same title. Though joint tenants as between themselves have separate rights as far as outsiders are concerned, each is treated as the single owner of the entire property. On the death of one joint tenant his or her interest passes to the surviving joint tenant or tenants automatically, notwithstanding any disposition of his or her interest which the deceased may have attempted to make by his or her will. A joint tenancy is distinguished from a tenancy in common.
A Tenancy in Common is where two or more persons hold the same land under the same title but in distinct shares. It is co-ownership under which each tenant has a distinct interest in the property, though no one tenant has a right to possession of any particular part of the property. Tenants in common may acquire their interests under separate titles and at different times and there is no rule of survivorship. Tenants in common may devise their interest by will and if they fail to do so, title passes on death to the executor or administrator for the benefit of persons entitled on intestacy. There is a unity of possession but an entire disunion of interest.
In view of the common law definitions of these terms, we have taken the view that a tenant in common could not as an individual, be regarded as the owner of another home, but rather is a person who has a share or interest in another home. Ownership of another home as a tenant in common, even where the only other tenant in common is the applicant's spouse, would not constitute ownership in terms of paragraphs 18(1)(b) or (e).
Likewise ownership of shares in a company which owns another home does not make a shareholder an owner even where that person holds controlling shares in the company. A company is a legal entity separate and distinct from its shareholders and a shareholder has no legal or equitable interest in land registered in the name of a company. Notwithstanding that the Budget measures provide for assistance under company titles, a shareholder cannot be regarded as the owner of any property held in this way.
In view of the foregoing, the longstanding test of ownership is set aside. In its place will be a new two pronged test. The first part relating to the property remains unchanged from the former test. That is, the property must represent a suitable security for a loan having regard to the usual test - acceptable holding, whether it is a house etc. Secondly, the applicant or wife or husband if applicable must not own another house as either a single tenant or as a joint tenant, no matter who the other joint tenant(s) may be. Although holding other property as a company shareholder or as a company title shareholder might satisfy the first part of the test, it would not be considered ownership under the second part.
3. Issue of generic certificates of entitlement under the Defence Service Homes Act 1918;
Measure number 3 is not to commence on receipt of this instruction and further advice will follow at a later date. It involves a change from the existing arrangements whereby the purposes of advances are required to be inserted on certificates when issued. This measure allows for certificates for initial, further and additional advances to be issued for any of the purposes listed in ss.18(2) and (3) of the Act. The purpose(s) will need to be captured off the application form for entitlement processing purposes, but not printed on the certificate for these advances. There will also need to be provision for the purpose for which the advance was made to be captured/updated from the returned certificate as indicated by Westpac.
Coupled with this measure, but not part of the Budget itself, is the proposal to abolish expiry dates from certificates. Certificates are to be useable at any time after issue and not restricted to the current three months limit. This change cannot be implemented until an amendment to the Agreement has been finalised. As mentioned above, further advice about these changes will follow later.
4. Extension of pool of persons eligible to insure dwelling-houses under the Defence Service Homes Act 1918;
This measure allows all eligible persons to insure under the Scheme irrespective of whether they have had, or intend to apply for, a Subsidised Advance. The Act already allowed for insurance cover over whole retirement village complexes and not just the unit occupied by an eligible person. In addition, the new arrangements allow in assigned cases, insurance cover over assignees' retirement village complexes and family homes which include granny flat accommodation for our clients.
Assessing eligibility for insurance purposes will be done solely in Insurance section. This action is not a formal determination of eligibility as such, nor to be taken as an indication of entitlement to a loan. A warning to this effect is included on the form. The assessment is not to be checked by Subsidy staff at all. If the person applies for a Notice of Eligibility or a Certificate of Entitlement, then the usual 'best evidence' approach to formally determining eligibility is to be followed. The fact that Insurance Section has extended insurance cover is not to be considered to be material under 'best evidence'.
A subsidiary matter related to the insurance measure is the cancellation of the 'insurer of last resort' provisions in subsection 38D(2) of the Act. This provision has been repealed.
5. To redefine terms and to stabilise interest rates for further advances under the Defence Service Homes Act 1918;
This measure makes all existing loans and loan entitlements portable for the remainder of their current term and stabilises the interest rate at the rate of the current loan. This also applies to all cases where, although the loan was not current, there is an unused portable loan entitlement under the rules which applied at the time of the Budget announcement ie 9 May 1995. In other words, for any case seeking a Further Advance where the previous loan was not current as at 9 May 1995, the total periods of preceding advances as at 9 May 1995 as per the definition of "prescribed period" in the former section 36 must not have equalled or exceeded 25 years. Once having satisfied this prerequisite, the term of the further advance is to be the unexpired term of the immediately preceding previous advance. Although the former subsection 36(4) which contained the definition of the term "prescribed period" has been substituted, the application provision in Item 66 of the VALA Act provides for its continued application where subsidy was not payable on 9 May 1995.
The result of this change is that tiered certificates will need to be issued to provide for tiered loans. The amounts shown on certificates will be the limits on discharge of the existing advance/s currently applying for the remaining term (excluding widow/er and essential repairs advances). In any case where the amount taken on portability is less than the amount of the previous advance discharged, the reduction must be apportioned across all tiers in the same ratio of the discharged advance. This same rule is to apply to the interest charges for cases involving building with progress payments.
There are difficulties with the system providing estimates of remaining terms because of the lack of settlement date information in many cases. Where this occurs, the necessary information should be accessed from the file.
6. Extension of eligibility for Defence Service Homes benefits to full time members of the World War II Women's Services;
This measure means that no longer will the restrictive provisions of subsection 4(2A) requiring overseas service for members of the women's services listed be applied. This also applies to full time paid members of the Voluntary Aid Detachment. A service number for a VAD member would be sufficient to establish full time paid status. As for other members of the services, best evidence is to be used in determining eligibility for WWII women.
It is important to note that benefits flowing from this initiative are not to be affected by, nor affect, any previous assistance received directly or indirectly as the spouse or widow of another eligible person. A woman eligible on her WWII service who is also an eligible widow may receive concurrent assistance at any time and not 'once only'.
The system has been modified to identify the service details for this category. The rules for allocating file numbers for applications from full time members of the WWII Women's Services are as follows:-
If the applicant is currently in receipt of a subsidised advance as the spouse of an eligible person with the eligible person's file number eg as a survivor of a joint tenancy, then it is necessary to create a new file number and application for the applicant as a concurrent group.
If the applicant is currently in receipt of a subsidised advance as an eligible person eg widow, and already has her own file number, then it is necessary to create a duplicate client with a new file number as a concurrent group.
7. Allow the assignment of a DSH loan entitlement to certain providers of retirement village accommodation and persons providing "granny flat" accommodation to eligible persons;
This measure allows an eligible person who has a current certificate of entitlement but for which a subsidised advance has not been made, to apply for and receive a certificate of assignment. The effect of these arrangements is that the benefit of the eligible person's subsidised advance is able to be assigned to another person on the basis that the assignee will provide retirement village or granny flat accommodation for the assignor for an indefinite period. Both certificates are to be issued to the eligible person. Both certificates are to be presented by either the eligible person or the assignee at the Bank in order to negotiate the loan. The Bank will apply its normal lending criteria to such proposals and not those specified in Schedule C to the Agreement. The assignee will become the borrower and any financial arrangement entered into by the parties in relation to the provision of the accommodation is not our concern. The action of applying for a certificate of entitlement and a certificate of assignment are two separate actions. This is to ensure that the eligible person is fully aware of what he/she is doing and that the assignor and assignee have consciously agreed to the terms of the assignment arrangement.
Assignors once having assigned an Initial Advance are to be able to apply for C of Es and C of As for Additional Advances, Further Advances, Widow/Widower Advances, and Advances for Essential Repairs, but not Instalment Relief. As for Initial Advances, assignors seeking any of these advances will need to apply for both C of Es and C of As as per the two step process. The restrictive provisions of subsection 22(1) in relation to transfers are not to apply to assigned advances.
8. Cancellation of payment of subsidy in respect of deceased estates where there is no surviving spouse.
This measure provides for the cancellation of subsidy from a date three months after the death of the eligible person or spouse whichever occurs last. If there is a surviving spouse, no change to the existing arrangements is to occur. If a surviving spouse who is not a veteran in her/his own right subsequently remarries then dies, subsidy is to be cancelled unless the second spouse is also eligible.
Certain aspects of the Agreement between the Commonwealth and the Bank are also implicated by the Budget measures. A draft amended Agreement has been prepared and is still under consideration. Once this aspect is finalised a further instruction covering procedures will be issued.
Changes to General Orders
The Budget measures necessitated a number of changes to the General Orders. Brief explanations of the changes are as follows:
Eligibility
Amendments to the Eligibility General Orders have been made explaining the new provisions for World War II ex-servicewomen. Replacement pages 11-16 are attached.
A typographical error in the schedule to the War Gratuity Act 1945 has also been corrected. Replacement pages 45-46 are attached.
Amended Contents pages 1-2 are also attached.
Subsidy Administration
Amendments to the Subsidy Administration General Orders have been made to take account of assignments and deceased estates cases. Revised pages 15 - 36 replacing pages 15-31 and revised Contents pages are attached
Administrative Framework and Decision Making
Amendments to the Administrative Framework and Decision Making General Orders have been made to take account of assignments and deceased estates cases. Certain decisions in relation to assignments and deceased estates are reviewable and appealable. Replacement pages 17-22 are attached.
Entitlement
Amendments to the Entitlement General Orders have been made covering generic certificates of entitlement, assignments, company titles, leasehold titles, granny flats, the changed terms and interest rates for further advances, and tenancies in common
As mentioned earlier, the extension of assistance to tenants in common and for company titles has implications for the longstanding test of ownership of other homes. Accordingly, Entitlement GO 3.7.5 and 3.7.5.2 have been amended.
This opportunity has also been taken to insert a new GO 3.6.1.1 and amend GO 10.12 as a result of NOIs 44 and 46 covering the purchase of equity in properties and transfers to tenants in common.
The Widows' Table at Appendix A has also been amended to reflect the special status of WWII women who might also be eligible as widows.
In view of the extent of the changes to the Entitlement General Orders, a revised volume has been prepared to replace the existing volume. The revised volume is attached.
Subsidy Procedural Matters
Amendments to the Subsidy Procedural Matters General Orders have been made to take account of assignments. Replacement pages 11-16 and revised Contents pages 1-2 are attached.
Subsidy Verification and Payment
Amendments to the Subsidy Verification and Payment General Orders have been made to take account of assignments and deceased estates cases. The opportunity has also been taken to incorporate the changes necessary as a result of the transfer of the National function to the NSW Office.
In view of the extent of the changes to the Subsidy Verification and Payment General Orders, a revised volume has been prepared to replace the existing volume. The revised volume is attached.
Effect on previously issued NOIs (formerly COIs)
This instruction supersedes COI 35 on WWII ex-servicewomen, COI 31 on transfers to tenants in common, refines the policy in COI 14 on pooled use of entitlements, refines the policy in COI 11 on widows if they are also WWII ex-servicewomen, and refines the definitions of initial and further advances in COI 5. It also supersedes the basic test of ownership of other homes promulgated in old COI 133.
G E FITZGERALD
General Manager
25 January 1996
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